Principal's Report to the Community

Queen's Financial Challenges

Introduction

I'm here to have a frank conversation with you about the serious financial challenges we are facing at Queen's, and the steps we're taking to address them.

In the process, I hope to dispel some misconceptions about how we got to where we are today, and to provide some suggestions for how we're going to move forward.

Above all, I'm looking for feedback and participation from you as members of the Queen's community.

I believe that transparency about the issues we face will support us in finding solutions, so I am committed to delivering regular reports to the Queen's community about our progress in the coming months.

I'm confident that concerted cooperation from all quarters will permit us to live up to this university's proud tradition of resilience and innovation... to ensure that Queen's future continues to support the unique learning environment and quality student experience that have so distinguished our past. But, make no mistake, radical changes in the way we do business are needed.

I have been working with the Vice-Principals and Deans on this process since I took up my position as Principal in May - before the dramatic changes we've witnessed in the past weeks and months in the financial sector. But as you're no doubt all aware, the recent market havoc has added an additional level of uncertainty to an already difficult financial situation we have been working to resolve.

Let me give you an overview of that situation:

Overview of Queen's Financial Situation

Over the past two decades, government funding as a proportion of our operating expenses has declined significantly.

Government Funding

Graph 1: Provincial Grants as a Proportion of Operating Revenue

In the early 1990s, grants from the provincial government - represented in blue [at the bottom] on the graph - accounted for almost three-quarters of our revenue. [74% in 1992-1993 versus 48% in 2007-2008]

Fifteen years later, the monies we receive from the province account for less than half of our operating revenue. That means that every year, we have to make up more than 50% of the cost of our day-to-day operations. In these circumstances, you can start to understand how difficult it is to deliver the same quality of education.

To help compensate, we've been forced to raise tuition fees and still cut budgets every year in recent years. We have also more than doubled our reliance on fundraising but, in general, this doesn't provide money for general operating expenses.

Some of you may be aware that governments have increased research grants in recent years. I'm proud to say that Queen's faculty have done very well in this area, attracting record levels of public and private funding for research.

Here you can see in graphic terms the growing gap between the revenue we receive from provincial government sources, and the expenditures necessary to run the university on a day-to-day basis.

The blue [top] line represents the rise in our operating expenses over the past four years alone: an increase of almost 70 million dollars, composed of rising costs associated with enrollment growth, hiring of new faculty and staff, salary increases, pension costs, inflation, debt financing and others.

In contrast, the red line at the bottom indicates the almost flat trend of the provincial grants. Those monies have not remotely kept pace with our costs and the shortfall we have to make up is growing every year.

As a result of all of these factors, we are again facing a substantial shortfall of revenue versus expenditures as we plan for 2009-2010. In addition, we continue to have a $40 million unfunded liability in our Pension Fund, and that number is expected to increase. Dealing with that problem alone would save us several million dollars a year.

The majority of our sister Ontario universities share this pain. And yet, Queen's has an additional challenge most other Ontario universities don't face.

In recent years, despite pressure from the government to increase student enrollment, we made a conscious decision to try to preserve our exceptional reputation for quality by maintaining a student population that is smaller than many of our peer institutions. One result of this decision is that Queen's continues to be rated very highly in critical areas like student engagement.

However, relative to our peers, we have not benefited from increased government funding aimed at substantially expanding student enrollment.

As a result, our share of provincial grant funding has diminished.

Graph 3: Decline in system share as others increase enrollment

As you can see, schools like Western and the University of Ottawa - represented in blue and yellow at the top of the graph - have seen their share of the operating grants rise in recent years as they've opened their doors to more students.

In contrast, Queen's - the red line at the bottom - by choosing to remain mid-sized, now receives proportionately less money than we used to. Six years ago our share of the provincial pie was just under 7 per cent; now it's 5.6 per cent.

This has an impact not just on the money that we get for student-focused programs, but also on the money we get from the government for capital projects.

Capital Projects

Let me say a few words now about capital projects.

I know that some people look at the cranes on our campus and equate their presence with cuts to programs. But that's simply not how it works.

The government funding we receive for renovating old buildings, or putting up new ones, is explicitly allocated for capital projects. It cannot be spent on educational operations.

We do not get to choose between constructing new buildings or funding student programs. We get to choose between constructing new buildings or making do with the old ones, regardless of how inadequate they are. If we expect to remain competitive with the best universities in coming years, as is the Queen's tradition, we will have NO choice but to continue to build, renovate and restore.

Which brings me to one of the elephants in the room: the Queen's Centre.

The complex composed of the original John Deutsch University Centre, the Physical Education Centre and the Jock Harty Arena was designed to accommodate the needs of 7,800 students. It has been a cornerstone of non-academic life at Queen's. However, over the past 30 years, no significant capital investments were made to upgrade its facilities, which now need to support the activities of more than 20,000 students, faculty and staff.

Student surveys have repeatedly revealed that our current facilities don't meet the standards expected of a world-class university. In the competition for undergraduate students, it is our Achilles heel.

The investments we're making to revitalize our campus - including the Queen's Centre - are necessary and overdue. They play a critical role in maintaining the tradition of quality for which we are known, and they will help to ensure we remain competitive well into the future.

We are actively soliciting donations in support of this revitalization. Queen's is enormously fortunate to have a large base of proud alumni who are both eager and capable of giving back. Their generosity funds state of the art labs and new lecture halls, student scholarships and research chairs and we are counting on them to help in this process of capital renewal.

Another part of the response to the challenge of renewing our facilities includes assuming some debt. Some people - justifiably proud of Queen's tradition of avoiding debt - are concerned about this.

Elsewhere in Ontario, and across the country, the cautious assumption of capital debt in order to maintain a quality learning environment is an accepted and prudent practice.

It's similar to you going to your bank to obtain a loan for conducting major repairs on your home: this protects your investment.

In the current economic environment, it is in Queen's best interest for us to protect and improve our own facilities and infrastructure.

Our reputation for quality depends on our ability to attract the best students and faculty and staff. We can't continue to do that unless we're able to continue offering an exceptional physical environment. That will mean we must find ways to revitalize or replace outmoded or no longer functional buildings.

Solutions

So how do we resolve our operating budget problem?

We are tackling it on a number of fronts. One of the advantages of being a university is that we're able to draw on the expertise and ideas of many very smart, creative people such as those represented in this room and many alumni across this country who have a strong commitment to this place.

We have initiated the budget planning process much earlier this year, to give ourselves more time to develop innovative solutions.

In addition, I have already convened a number of task forces which are focusing on issues such as alternative revenue sources; our use of physical space; the way we buy goods and services; the possibilities presented by technology; the flexibility of our enrolment targets; and opportunities for cost reductions.

Individual faculties are providing input, and the university's administrative leaders - Vice-Principals and Deans - are making the budget a top priority. But, the reality is, we need the help of the entire Queen's community to help with this major challenge. That is why I have tried to reach as many people as possible with this update.

My message is clear. We cannot continue business as usual.

In the meantime, I want you to know that we won't solve this problem overnight. We probably will not solve it in a single budget year. It will take time and determination but we will solve the problem.

I know you share my passionate commitment to sustaining Queen's tradition of excellence. I trust you will rally together in the face of these challenges, and I am confident that our collective resilience and creativity will help generate the necessary solutions. They will not all be possible in one year. We may need to phase in our financial plan over a few budget years.

As Principal, I will continue to update you as we go. This is merely the first in a series of dialogues that you can expect to have with me over the coming academic year.

Finally, we need to come to grips with the financial challenge as a community. Queen's needs ideas and advice from everyone in this place. I'm asking you this afternoon to become engaged in helping us get Queen's on to a sustainable financial track for its future.